Key Points to Consider When Saving for College

Late this past summer, earlier this fall, millions of students made it back to their college or university of choice; others made it, but maybe not to the school of their choice.  Millions of parents hope their younger children might one day do the same.

Most, if not all of those families, might be thinking about how to save for that expense.  Others may not yet have begun saving.  And, yet others, perhaps most, feel hopeless. 

They have debt – mortgages, credit cards, auto loans, medical bills, maybe even their own student loans – but have no hope they can one day be free from debt and able to help their children cover the expense of an undergraduate education.

As with much of life, it’s never too late to begin saving. 

The favored saving vehicle of the day is now, and has been for some time, the 529 Plan.  It is the vehicle of choice, providing the best odds of having the money when needed.

Sure, it’s an immensely popular plan.  Why wouldn’t it be?  Everyone writes about them, the media pushes them.  It must be the right vehicle to use!

But, is it really a savings plan???

After all, the investments (?) in these plans are tied to your risk tolerance – low, moderate, high.  If it’s really a savings plan, why is risk attached to it?  If there’s risk, isn’t it possible you’ll have lees when needed then the amount you invested?

Sure, there’s tax-free growth and tax-free withdrawals (when the money is used for qualified education expenses).  And, then there’s the published disadvantages – limited investment (there’s that word again!) options and a 10% tax penalty if the money is used for non-qualified purposes.

Basically, you lose most control over the money when you contribute to 529 Plans and you subject it to market forces (i.e., possible loss). 

Why utilize 529 Plans when there is a better option, an option they do not promote.  It’s not a Roth IRA, as once again you lose control of the money and subject it to risk of loss.

Contact us about a properly designed and implemented college planning campaign.  We’ll show you the best options for the money you were going to invest in a 529 Plan.

Co-Signing a Loan and Your Finances

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When it comes to federal student loans, the loans that are included in the award of financial aid, a co-signer is unnecessary. 

Parent PLUS loans can be taken to help your child cover the cost of their education.  These loans, taken in your name, definitely obligate you to repayment.

Unfortunately, there are times when a co-signer is needed.  Such times are when private student loans come into play.

The question(s) to consider are whether you should co-sign on student loans for your child and whether you should co-sign on any loan for your child?  While you are helping your child cover the expense of an undergraduate education they would otherwise be unable to afford, if you haven’t planned properly, you are doing so at risk to your financial well-being.

  • You are obligated to repay the debt.  Certainly, if you’ve taken a Parent PLUS loan, you’re obligated.  And, if your child cannot afford to repay the private student loan, you’re obligated.  The difference between the two is that the private student loan typically has a lower interest rate and a number of repayment options the PLUS loan doesn’t.
  • Student loans are rarely dischargeable in bankruptcy.  This is true whether it’s federal student loans, Parent PLUS loans, or a private student loans.  Taking the loan isn’t the issue with which to be concerned; having a specifically-designed and implemented repayment plan is the issue.
  • There’s no “free-look” period with student loans.  Once signed, you’re on the hook.  While finances maybe fine at present, will they be so 5-10 years down the line?  Will you be nearing retirement and responsible for repayment during your retirement?  Will you still be in good health?  Proper planning with a professional college planner takes these possibilities into consideration.

A properly designed and implemented college planning campaign addresses the above risks and others that may arise.  Make sure you have peace of mind when it comes to college planning and your finances.

We look forward to your call.

Student Loan Mistakes Most People Make

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Student loans are par for the course for most attendees.  In fact, due to the projected expense of an undergraduate education, they likely had no choice but to borrow.  And, according to studies/surveys, they borrowed more than necessary due to one or more of the following strategic errors…

Borrowed more than necessary.  Studies suggest that students who borrow more than necessary fail to exhaust all other options (e.g., financial aid, grants, scholarships).  Or, they failed to identify other means of reducing the expense.  Perhaps, both.  The reality is, however, that if they have borrowed more than necessary, neither they, nor their family, have properly run a college planning campaign, assuming there was any planning whatsoever.

Failing to pay the monthly interest while in school.  If you can pay the interest while in school, it will help reduce the amount to be repaid over time.  The reality is, however, that most students cannot afford to make the monthly interest payments while in school because, again, neither they nor their family have properly run a college planning campaign, assuming there was any planning whatsoever.

Improperly using deferment or forbearance.  While useful tools that help prevent default on your loans, there are only so many options for their use.  Loans continue to accrue interest, therefore resulting in ever-increasing balances.  The reality is that, if the student and family had properly run a college planning campaign deferment and/or forbearance would be unnecessary.

Consolidating student loans.  While it smacks of common sense, it may have negative consequences for the student.  On consolidation, accrued interest becomes part of the new loan’s principal, with interest accruing on a larger balance.  While consolidation may be right for a particular student, but a properly run college planning campaign will better address consolidation as a repayment strategy.

Failure to find the right private student loan.  Federal student loans are part of the financial aid packages offered by the schools.  Private student loans cover the difference between the projected cost-of-attendance and the finalized financial aid award.  These loans can take the place of Parent PLUS Loans.  There are a variety of lenders with varied rates, and a variety of repayment options.  A properly run college planning strategy will encompass this option.

A variety of additional mistakes can be made.  But, like those above, a properly run college planning campaign will not just prevent, it will eliminate both the common and uncommon mistakes families make when funding their college planning campaigns.

For assistance with your family’s campaign, we await your call.